TDS (Tax Deducted at Source) is applicable on mutual fund withdrawals only in some specific cases. From April 1, 2023, if you withdraw money from a mutual fund where dividends are paid or if it's a non-PAN linked account, TDS may be deducted. For capital gains, TDS is not deducted for resident Indians, but it may apply for NRIs.

What is TDS on Mutual Fund Withdrawals?

TDS on mutual fund withdrawals means a small portion of the amount is deducted as tax before the money is credited to your account. However, this is not applicable to all types of withdrawals. It mostly applies to dividends and NRIs making redemptions. Long-term or short-term capital gains do not attract TDS for resident investors.

Is TDS Deducted on Mutual Fund Dividends?

Yes, TDS is deducted on dividends received from mutual funds. If the dividend income exceeds ₹5,000 in a financial year, 10% TDS is deducted. If your PAN is not linked or invalid, 20% TDS is deducted. This applies to both equity and debt mutual funds that pay dividends.

Does TDS Apply to Capital Gains?

No, for resident Indians, there is no TDS on capital gains from mutual fund withdrawals. You are required to pay tax on these gains when filing your income tax return. However, for NRIs, TDS is applicable on both short-term and long-term capital gains at applicable rates.

When is TDS Not Applicable on Mutual Funds?

TDS is not applicable if you are a resident Indian withdrawing from mutual funds in the form of capital gains. It is also not deducted if your total dividend income is less than ₹5,000 in a financial year. SIP withdrawals also do not attract TDS unless the income is dividend-based.

How Can You Claim TDS Back?

If TDS has been deducted and your total income is below the taxable limit, you can claim a refund by filing your income tax return (ITR). Make sure your PAN is updated with your mutual fund records to avoid higher TDS. Also, check Form 26AS for TDS details before filing your ITR.

What Should NRIs Know About TDS on Mutual Funds?

NRIs are subject to TDS on mutual fund capital gains and dividends. Short-term capital gains are taxed at 15% for equity funds, while long-term gains are taxed at 10% above ₹1 lakh. For debt funds, rates are higher. NRIs should also ensure proper tax filing to claim any refunds or avoid double taxation through DTAA benefits.